Shareswatch Australia

There is nothing particularly exciting about the Australian stock market these days. The malaise which has essentially paralysed the government seems to have spread to the business sector which in turn is slowly sucking the lifeblood out of the share market. It’s unlikely that things will improve soon and so investors should prepare themselves for the market to move lower over the next few months.

According to many experts, Australia is in the midst of a mining boom and the government often tells us that the Australian economy is performing better than most if not all, of the world’s major developed economies.  Certainly the commodities boom has delivered record profits for many companies,  generated massive tax revenues for the federal and state governments plus created many thousands of jobs.

It wasn’t that long ago when ex-Treasury Head Ken Henry talked about the Australian economy being in a ‘Golden Age’. I guess when you can retire on a lucrative public service pension and then parachute into a highly paid job as an advisor to the Prime Minister the future does probably seem bright. But now in early 2012 as unemployment appears set to rise and the economy is showing signs of weakness, Ken Henry’s ‘Golden Age’ comment might end up in the same category as Tim Flannery’s ‘Dams will no longer fill’ prediction.

Recently the markets appear to have settled somewhat and the Australian stock market has steadily been heading higher so far in 2012. Could we be seeing the early signs of another bull market taking hold or are we about to see another sharp correction take the ASX All Ordinaries back down towards 4000 and perhaps lower?

Recently the markets appear to have settled somewhat and the Australian stock market has steadily been heading higher so far in 2012. Could we be seeing the early signs of another bull market taking hold or are we about to see another sharp correction take the ASX All Ordinaries back down towards 4000 and perhaps lower?

The ASX All Ordinaries Index and S&P/ASX 200 Index finished much lower than I expected in 2011, so this makes me somewhat reluctant to go on record and make an Australian stock market forecast for 2012. However the process of looking at the various economic data and trying to guess where the market will end is a useful one, so foolishly I will outline once again my Australian stock market forecast for the year ahead.

As we approach the end of another year we should not be surprised by the economic turmoil in Europe, the ailing U.S. economy or the rumblings of a major slowdown in the Chinese property market. The signs that all was not well with the global economy have been raised on this humble site going back more than a year. Simply put, borrowing vast sums of money and splashing it around did not fix the global economic imbalances highlighted by the market meltdown in 2008.

If you were to believe some of the ramblings on mainstream media sites you might get the impression that Australian stocks have on occasions bounced back strongly and that in some way this is a reflection of how well the Australian economy is doing. However the reality is that the Australian stock market has been trending downwards since July and many stocks are simply limping from one week to the next.

The continuing debt crisis in Europe is a reminder to investors that we are still in the midst of the Global Financial Crisis (GFC) which first gripped the markets back in 2008.  The G20′s first cunning plan to spend their way out of trouble didn’t do much to fix the root causes of the GFC and so they are gathered once again for another talkfest which at best, might give the markets a kick upwards for a few days.

As each week passes the moans of struggling businesses grow louder and finally it appears that the Reserve Bank of Australia (RBA) board members have woken up to the fact that the economy has been sliding backwards since late 2010. Once again the RBA had made a tactical blunder and raised rates too high just as they did as the global financial crisis was unfolding back in late 2007.

On a daily basis, dozens of finance and business journalists try to convince the general public that they somehow have an insight into what the Australian economy is doing or how the economy will fare over the next six months or so. But the truth is, nobody has a clue what will happen for the rest of this year as we are still stuck in the Economic Twilight Zone.

Back in April last year I suggested that the Australian economy was not quite as robust as most market commentators appeared to think and that it was quite possible for economic conditions to deteriorate quite markedly over the next few years.  So now one year later after I wrote about a possible economic slump in Australia let’s have a look at how events have unfolded since then.

Some time ago I wrote that we would better served by having a Hobbit look after the Australian economy than the RBA, Treasury & Government and recent events have made this idea look particularly attractive. For at present we have the RBA raising rates, the Government spending and the Treasury appears to be unsure what is happening.

After the strong stock market rally today I think we can safely say the bear market of 2008-2009 is now well and truly over. The ASX All Ordinaries & ASX 200 are still clearly trending upwards and commentators who were predicting a Global Depression just a few months ago have started adjusting their forecasts.

A lot of attention has been focused on consumer prices recently as economists try to determine if deflation or inflation is going to be the next challenge for the OECD economies to deal with. On the surface it would seem that due to falling asset prices, unemployment and the decline in personal wealth that this would push many of these economies into a significant period of deflation. But is that really likely to happen?

Depending on your point of view the world’s stock markets are either having a temporary rally before they continue their downward slide or we are witnessing the start of a slow global economic recovery. But rather than make any assumptions or speculate on the future let’s look at what the news from markets around the world might be telling us.